9 Year-End Tax Tips for Non-Millionaires

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Longtime Motley Fool contributor Selena Maranjian covers investing and personal finance topics for The Motley Fool and Daily Finance. She also prepares the Fool'ssyndicated newspaper column, has coordinated the Fool's annualFoolanthropy charity drive, and has written a number of Fool books, among other things. With degrees in anthropology, teaching, and business, Selena enjoys trying to demystify the field of finance. Prior to becoming a financial writer, she taught high school history in Maine, amused herself at an administrative post at Harvard, and worked briefly in the "real world" in Manhattan. Selena can be found at Google+ and Twitter, where she shares business-related and very-not-business-related content. To read more of her work, check outThe Motley Fool Money Guide: Answers to Your Questions About Saving, Spending and InvestingandThe Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of.

If you're a millionaire, lowering your taxes can be complicated, involving shelters in the Cayman Islands, Swiss bank accounts, fancy trusts, and other strategies -- some of which are only arguably legal. But for the rest of us who are not near the top tax brackets, minimizing payments to Uncle Sam can be simpler.

Here are some tips to help you lower your tax bill. Note that some of them require you to act before 2013.

While a tax deduction lets you reduce your taxable income, saving you some money, a tax credit reduces your tax hit dollar-for-dollar. Take some time to learn about various available credits and deductions, and you may suddenly find yourself paying thousands less in taxes. For instance, if you have children, dependents, or education-related expenses, or have been hit with a costly natural-disaster loss, there are credits and deductions out there that you may be able to take to reduce your tax bill.

If you're 70 1/2 years old or older and you have a traditional IRA, you need to take your required minimum withdrawals annually. Failing to do so can force you to pay big penalties: 50 percent of what you should have taken.

For 2012, the annual gift tax exclusion is $13,000 per donor and per recipient. You can give up to $13,000 to as many individuals as you like, tax-free. And if you're married, you and your spouse can give $26,000 per recipient. This exclusion rises to $14,000 for 2013, but if you don't make your gift by the end of the year, you lose the 2012 exclusion. Those interested in transferring a lot of money to their kids, for example, might want to max out contributions each year for a while.

If you tend to give a lot to charities and you've got some stocks in your portfolio that have grown nicely for you, consider giving appreciated stock to your favorite charities instead of cash. If you've held the stock for more than a year, you'll avoid paying tax on the appreciation, and you can still deduct the full value of the stock. Call your favorite nonprofits; the folks there will probably be able to help you with this. Even if you're just going to give cash, consider doing so before the end of the year so you can get the tax deduction on this year's tax return.

You should be able to do this even if you don't itemize your deductions, as long as you include your ex's Social Security number. The IRS needs it so that it can make sure that your ex has claimed the amount as taxable income.

Municipal bonds may not seem exciting, but the income they generate is generally free from federal taxes and from taxes in the issuing municipality. In contrast, income from corporate and Treasury bonds is taxed as ordinary income, at rates that can be relatively steep. Municipal bonds do typically offer lower yields, but lately, the rates have been comparable to Treasuries of similar maturities despite offering tax-free income. Some municipal bonds aren't as safe as Treasury bonds, but top-rated ones are close. If you're interested, consider municipal-bond mutual funds. Also, pay attention to current tax wranglings in Washington, as the tax-exempt feature of municipal bonds may actually end up reduced or removed.

It can be tax-smart to time some of your financial events strategically. For example, if you have a mortgage and you pay your January bill early, by Dec. 31, you may be able to deduct the interest in your 2012 return. (If you pay your property taxes and state or local taxes before year-end, you should be able to deduct them, too.) Note, though, that some mortgage lenders won't cooperate and may apply your extra payment toward principal and not interest, or may just not include the extra payment on your year-end tax statement. Check with them first.

Similarly, if you're expecting a sizable bonus at work soon, you might ask your employer to pay it to you in January, in order to lower your taxable income for 2012. If you earn your income by billing people for your work and collecting payment, you could also delay sending out some bills until January, in order to reduce your 2012 income. Pay state estimated taxes each quarter? Send in your January payment in December, and you should be able to deduct them this year -- assuming you can itemize your deductions and you're not subject to the Alternative Minimum Tax, or AMT. Above all, consider your tax rate and whether you expect it to be much higher or lower next year -- then shift whatever income and expenses you can accordingly, to minimize your tax hit.

To make sure you're building a better retirement for yourself, be sure to take advantage of IRAs. Contribution limits for 2012 are $5,000 per year for a traditional or Roth IRA, but those 50 and older can contribute $6,000. You can actually make your 2012 contribution any time up to April 15, 2013, but the earlier you do, the sooner those dollars will start working for you. If you have the money available, you might also want to make your contribution for 2013 closer to the beginning of the year than the end. Limits for 2013 IRA contributions rise to $5,500 for most of us and to $6,500 for those 50 or older.

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The Affordable Care Act put in place significant tax-related programs that impact Medicare and Medicaid, such as increased Medicare taxes on earned and unearned income for high-wage earners, and Medicaid changes that increase the number of insured individuals. Establishing whether you are affected by the ACA-imposed taxes, or are eligible for certain health programs that fall under the Centers for Medicare and Medicaid Services, is determined by filing your income tax.

There?s a fine line between looking to save money on your taxes and taking deductions that will raise eyebrows at the Internal Revenue Service. Some taxpayers are tripped up by expenses that they assume are tax deductions, but don?t qualify under IRS guidelines. Here are a dozen items that can lead to unpleasant surprises in case of an audit.

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

In 2014 the Affordable Health Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. These forms help determine if you need to comply with the new shared responsibility payment, the fee you might have to pay if you don't have health insurance. For individuals who bought insurance through the health care marketplace, this information will help to determine whether you are able to receive an additional premium tax credit or have to pay some back.

11 Comments

Many have said to heck with it, pack up their goodies and buy a travel trailer from 2000.00 to 5000.00, and the ones I have seen look pretty nice, anyway they leave the home to the bank, and off they go, no mortgage to pay and the retirement covers the low lot rent and utilities..Maybe the older people see what many of us that are hanging on dont...Why pay for something and not live long enough to enjoy it..or no job to pay it..Merry Christmas to all...Prayers or not, hang on as its going to get better in fall of 2014, per the top dogs that tell the truth....

As a US small business owner and someone with 2 signed letters back from Obama in last 4 years, I will tell you, he and his hypocritical double standard liberal agendas will be the final nail in the coffin of the USA as it was meant to be.They DO NOT care about traditional US families or serious small business growth or supporting anythng of former work ethic which made this nation, and are so far off the point of reality it shows in his letters to us. They want to punish and encumber those who do not go with their liberal agenda, to create a larger lazier pool of followers who want everything for free and easy from the Govt, while these uber-rich liberal types become wealtheir in the progress from the ignorance.

Already his Admin has gotten my small business last year placing us into a 38.33% bracket which makes no dammnnn sense to see. IRS agent already went to another small business owner I know in PA too saying they wanted to only speak about some lapse in a monthyl tax filing doc which makes no sense either, but they see he built a new $40,000.00 pole barn building on his property for his busienss and I suspect it is backdoor lifestyle audit approach which is suppsoed to be outlawed long ago!

HuffPuff and AOL are such liars: Being "near the top tax brackets" does not make you anywhere vaguely close to being a "millionaire or billionaire". It means you earn less than one-fifth of a million a year if you are a single or one-fourth if you file jointly. It is a "BIG LIE".

It is also a BIG LIE to suggest that those middle class people are engaged in illegal tax dodges like hiding income from "Cayman Islands" or "Swiss" accounts.

According to Obama and the lefties: earning over $200,000 per year if you are single (about one-half of taxpayers), or $250,000 per year if you file a joint return. Their war is not really on the "rich" - it is a war on the middle class.

The lefties are lying demagogues. But the amazing thing is that they are utterly without any shame - they just continue repeating the same obvious outrageous Big Lie.